Welcome to the May edition of the COSIMO Verbatim newsletter! This month we’re bringing you the latest industry news, with a deep dive into some of the biggest stories, portfolio updates, and events we’re attending.

 

May Insights

• SEC approves exchange applications to list spot ether ETFs

• Stablecoin Supply Approaching ATH

• House passes crypto market structure bill with bipartisan support

• M2 Money Supply Turns Positive, First Time Since Nov, 2022

• BlackRock’s BUIDL becomes the world’s largest tokenized treasury fund

• Fortuna Approved as a Virtual Asset Service Provider

• Circle Plans to 'Redomicile' company in the US, with IPO in Sight

 

Pioneering Change: Ethereum ETFs and the Evolution of Crypto Regulation

Evolving Global Regulation of Cryptocurrencies

Cryptocurrencies have significantly evolved from being largely unregulated. The regulatory landscape has matured, driven by market evolution and industry incidents. Governments and international bodies are increasingly establishing robust frameworks to manage the risks and benefits of digital assets.

The International Organization of Securities Commissions (IOSCO) has proposed 18 key recommendations for managing crypto and digital assets, emphasizing consistent global regulation due to the inherently international nature of crypto markets. The World Economic Forum (WEF) also underscores the importance of coordinated global efforts to balance crypto technology benefits with risk mitigation.

In the United States, the regulatory landscape is gradually taking shape. Two significant bills, the Financial Innovation and Technology (FIT) for the 21st Century Act and the Blockchain Regulatory Certainty Act, aim to clarify when a cryptocurrency is a security or a commodity, expanding oversight and delineating regulatory responsibilities. Despite their potential impact, progress has been slow, reflecting broader legislative complexities and debates over the future of digital asset regulation.

Recent Developments in US Congress

The US Congress is actively engaging in cryptocurrency regulation. The FIT for the 21st Century Act and the Blockchain Regulatory Certainty Act mark significant steps towards a more defined regulatory environment, crucial for fostering innovation while protecting investors.

The US Securities and Exchange Commission (SEC) recently approved the sale of spot Ethereum (ETH) Exchange-Traded Funds (ETFs), following earlier Bitcoin ETF approvals. This pivotal moment involved combining proposals from major exchanges like Nasdaq, NYSE, and CBOE, indicating a more open stance towards crypto-based financial products. However, individual ETF registration statements still require approval, involving detailed investor disclosures.

Ethereum ETF Approval: A Milestone for the Industry

The approval of spot Ethereum ETFs by the SEC has been met with a mix of surprise and optimism within the industry. Historically, the SEC has been cautious about crypto-related financial products, making this swift approval particularly notable. The move is seen as a major vote of confidence in digital assets and is expected to open the floodgates for similar products.

Industry reactions have been largely positive. Alex Saleh, Head of Partnerships at Coincover, views this as a significant step forward, suggesting it could introduce fresh demand pressure on Ethereum's spot prices by making it accessible to a broader investor base. He also highlights the importance of risk mitigation and security for ETF managers, given the inherent volatility and potential for cyber threats.

On the other hand, Bitpanda Co-founder and CEO Eric Demuth considers the approval long overdue, emphasizing that it marks another key development in the crypto industry's evolution. He suggests that this approval will attract new institutional investors, reduce volatility, and further legitimize crypto as a mainstream asset class.

What the ETH ETF Approval Means for Regulation

The approval has significant implications, notably the potential classification of Ethereum as a commodity rather than a security. The SEC defined the ETF products as "commodity-based trust shares," leaning towards a commodity classification, which could shift oversight from the SEC to the Commodity Futures Trading Commission (CFTC), potentially creating a more favorable regulatory environment for cryptocurrencies.

A recent bipartisan bill in the US House of Representatives proposes splitting regulatory responsibilities between the SEC and CFTC, aiming to provide a clearer framework that fosters growth and innovation while ensuring investor protection.

ETH's Price Response to ETF Approvals

Despite the milestone, ETH's price has not surged as expected, trading around $3,840, similar to its pre-approval price. Broader macroeconomic factors, such as persistent inflation and high interest rates, have dampened enthusiasm for risk-on assets like cryptocurrencies. According to Noelle Acheson, former head of market insights for Genesis Global Trading, these economic pressures divert funds to traditional investments, restraining ETH's price growth.

Moreover, the ongoing approval process for individual Ethereum ETFs means actual trading has not yet begun, causing a wait-and-see approach among investors, leading to subdued price movements.

While the SEC's approval of Ethereum ETFs marks a significant regulatory milestone, its immediate impact on ETH's price is tempered by broader economic conditions. Nevertheless, this development is expected to pave the way for greater institutional investment and mainstream acceptance of cryptocurrencies, setting the stage for future growth and stability in the crypto market.

 

Portfolio Updates

Archax, the only FCA-regulated digital asset platform, has integrated Fireblocks, a platform supporting blockchain applications and digital asset management. This partnership aims to strengthen the security of Archax's operations and extend product offerings and market reach. More here.

Casper Labs, a secure store for managing AI data, introduces Prove AI to enhance transparency and auditability for artificial intelligence training data using blockchain technology. Prove AI is an AI governance solution designed to improve transparency and auditability of AI training data. More here.

Defactor, a B2b blockchain-enabled fintech platform, teams up with Outlier Ventures and Celo for RWA Base Camp accelerator. The RWA Base Camp will provide tailored support to startups building the infrastructure, applications, and products necessary for mainstream adoption of tokenized real-world assets across various industries. More here.

Hedera, a leading Proof of Stake (POS) blockchain platform, joins the Interchain Amplifier, a smart-contract-based toolkit by Interop Labs. The introduction of the Interchain Amplifier marks a significant stride towards achieving broad interoperability across diverse blockchain networks. More here.

Uphold, the global web3 financial platform, announces a new fully-licensed, white-label service to partners worldwide. The service will make it easy for enterprises to offer digital assets to their customers. More here.

 

Upcoming Events

The COSIMO team are on the road and will be present at the following industry events:

Our European Partner Connor Cantwell will be at ETHDublin this weekend, May 31 May-2nd June, 2024.

We welcome the opportunity to connect with fellow professionals and stakeholders during events like this. If you plan on attending any of these events, we encourage you to reach out and engage with us.